Quantitative techniques for management Décisions

(MBA 516)

BY :
ADMKEW HAILE (ASSISTANT PROFESSOR, PHD FELLOW)
DEPT OF MANAGEMENT
COLLEGE OF BUSINESS AND ECONOMICS
HARAMAYA UNIVERSITY

10/6/2023
 2

Chapter -1:
Introduction to Quantitative Techniques

10/6/2023
 What is QT

QT is the scientific approach to executive decision making, which consists of:

1. The art of mathematical modeling of complex situations.

2. The science of the development of solution techniques used to solve these

models.

3. The ability to effectively communicate the results to the decision maker.

➢ QT uses a scientific approach to solving management problems.

➢ It is used in a variety of organizations to solve many different types of

problems.

➢ It encompasses a logical mathematical approach to problem solving.

➢ It is also referred to as: Decision Modeling

QuantitativeAnalysis

Operations Research
 Types of Decision Models

(by purpose of the model)

Decision
Models

Optimization Predictive
Models Models
 Optimization Models

❖ Optimization Models seek to maximize a quantity (eg. profit)

or
minimize a quantity (eg. cost, time, etc.)
that may be restricted by a set of constraints (limitations on
the availability of capital, workers, supplies, machines etc.)
 Predictive Models

➢These techniques do not generate an answer or a

recommended decision.
➢Instead they provide descriptive results
➢They usually provide important input to optimization models
Types of Decision Models
(by the degree of certainty of the data)

Decision
Models

Deterministic Probabilistic
Models Models
 Deterministic Models

➢ Deterministic models assume:

➢ Complete certainty.

➢ All information needed is available with fixed and known values.

➢ Most commonly used deterministic modeling technique is Linear

Programming.
 Probabilistic Models

Probabilistic models are also called stochastic models.

Probabilistic models -

➢ assume some of data is not known with certainty.

➢ take into account that information will be available after the

decision is made.
 Steps Involved in Decision Modeling

1. Formulation.

2. Solution.

3. Interpretation.
Management Science Modeling Techniques

1. Linear Mathematical Programming Techniques

a. Linear Programming Models

b. Transportation Models

c. Assignment Models

d. Integer Programming Models

e. Goal Programming
 Management Science Modeling Techniques
2. Probabilistic Techniques
a. Decision Analysis
b. Waiting Line (Queuing) Models
c. Simulation Models
d. Forecasting Models

3. Network Techniques
a. Network Flow
b. Project Management Techniques (PERT/CPM)
 Management Science Modeling Techniques

4. Other Techniques
a. Non-Linear Programming Models
b. Inventory Models
Characteristics of Modeling Techniques

• Linear Mathematical Programming - clear objective; restrictions

on resources and requirements; parameters known with certainty.

• Probabilistic Techniques - results contain uncertainty.

• Network Techniques - model often formulated as diagram;

deterministic or probabilistic.

• Forecasting and Inventory Analysis Techniques - probabilistic

and deterministic methods in demand forecasting and inventory
control.

• Other Techniques - variety of deterministic and probabilistic

methods for specific types of problems.
 Applications
• Some application areas:

- Project Planning

- Capital Budgeting

- Inventory Analysis

- Production Planning

- Scheduling

• Interfaces - Applications journal published by Institute for Operations

Research and Management Sciences
 17

CHAPTER – 2
Linear Programming Models
(Resource Allocation Models)

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Linear Programming Models
❖ A model, which is used for18optimum allocation of scarce
or limited resources to competing products or activities
under such assumptions as
❖ certainty,

❖ linearity,

❖ fixed technology, and

❖ constant profit per unit, is linear programming.

❖ Linear Programming is one of the most versatile,

powerful and useful techniques for making managerial
decisions.
❖ Linear programming technique may be used for
solving broad range of problems arising in business,
government, industry, hospitals, libraries, etc.
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
 Linear Programming Models
❖ Whenever we want to allocate the available limited resources for
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various competing activities for achieving our desired objective, the

technique that helps us is LINEAR PROGRAMMING.

❖ As a decision making tool, it has demonstrated its value in various fields

such as production, finance, marketing, research and development and

personnel management.

❖ Determination of optimal product mix (a combination of products, which

gives maximum profit), transportation schedules, Assignment problem

and many more

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
 PROPERTIES OF LINEAR PROGRAMMING MODEL

20

Any linear programming model (problem) must have the

following properties:

❖ The relationship between variables and constraints

must be linear.

❖ The model must have an objective function.

❖ The model must have structural constraints.

❖ The model must have non-negativity constraint.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Variables
21

❖ The Company is manufacturing two products X and Y. These

are the two variables in the problem.

❖ We have to find out how much of x and how much of y are to be

manufactured.

❖ In linear programming language, these are known as

competing candidates.

❖ Because they compete to use or consume available resources.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Resources and Constraints
❖ There are three machines A, B, and C on which the products
22
are manufactured. These are known as resources. The capacity
of machines in terms of machine hours available is the
available resources.
❖ The competing candidates have to use these available
resources, which are limited in nature. Machine A has got
available 40 hours and machine B has available a capacity of
240 hours and that of machine C is 350 hours. The products
have to use these machine hours in required proportion.
❖ That is one unit of product X consumes 1 hour of machine A, 3
hours of machine B and 10 hours of machine C.
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
 Objective of the Problem

❖ Similarly, one unit of Y consumes 1 hour of machine B, 8

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hours of machine B and 7 hours of machine C.

❖ These machine hours given are the available resources and

they are limited in nature and hence they are constraints

given in the statement.

❖ For this in the statement it is given that the profit contribution

of X is birr 5/per unit and that of product Y is birr 7/per unit.

To maximize the profit how much of X and Y are to be

manufactured?

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Mathematical Relationship in the form of Mathematical Model

24
❖ Maximize Z = 5x + 7y Subject to a condition (written as s.t.)

OBJECTIVE FUNCTION.

❖ 1x + 1y ≤ 40

❖ 3x + 8y ≤ 240 Structural Constraints.

❖ 10x + 7y ≤ 350 and

❖ Both x and y are ≥ 0 Non-negativity Constraint.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Assumptions made in formulating a linear programming model:

1. It is assumed that the decision maker here is completely certain (i.e.,

25
deterministic conditions) regarding all aspects of the situation, i.e.,
availability of resources, profit contribution of the products, technology,
courses of action and their consequences etc.
2. It is assumed that the relationship between variables in the problem and
the resources available i.e., constraints of the problem exhibits linearity.
3. We assume here fixed technology. Fixed technology refers to the fact that
the production requirements are fixed during the planning period and
will not change in the period.
4. It is assumed that the profit contribution of a product remains constant,
irrespective of level of production and sales.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

5.It is assumed that the decision variables are continuous. It
means that the companies manufacture products in fractional
26
units. Eg. company manufacture 2.5 vehicles, 3.2 barrels of oil
etc. This is referred too as the assumption of divisibility.

6.It is assumed that only one decision is required for the

planning period.

7. All variables are restricted to nonnegative values (i.e., their

numerical value will be ≥ 0).

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Terms Used in Linear Programming Problem
❖ Linear programming is a method of obtaining an optimal solution or
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programme (product mix in a production problem)

❖ Limited resources and a good number of competing candidates to

consume the limited resources in certain proportion.

❖ The programme is referred as a course of action covering a specified

period of time, say planning period.

❖ The manager has to find out the best course of action in the interest

of the organization.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 General Linear Programming Problem
28

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

❖ Where all cj ‘s, bi ‘s and aij ‘s are constants and x j s are decision variables.

❖ To show the relationship between left hand side and right hand side the
29
symbols ≤ , = , ≥ are used.

❖ Any one of the signs may appear in real problems.

❖ Generally

❖ ≤ sign is used for maximization Structural Constraints problems and

❖ ≥ sign is used for minimization problems and in some problems, which

are known as mixed problems we may have all the three signs.

❖ The linear function, which is to be optimized, is the objective function.

❖ The inequality conditions shown are constraints of the problem.

❖ Finally all xi s should be positive, hence the non-negativity function.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Example 1

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A retail store stocks two types of shirts A and B. These are packed in

attractive cardboard boxes. During a week the store can sell a maximum

of 4000 shirts of type A and a maximum of 3000 shirts of type B. The

storage capacity, however, is limited to a maximum of 6000 of both types

combined. Type A shirt fetches a profit of birr 20/ per unit and type B a

profit of 50/ per unit. How many of each type the store should stock per

week to maximize the total profit? Formulate a mathematical model of

the problem.
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
 Example 2
31
A patient consult a doctor to check up his ill health. Doctor examines him
and advises him that he is having deficiency of two vitamins, vitamin A
and vitamin D. Doctor advises him to consume vitamin A and D regularly
for a period of time so that he can regain his health. Doctor prescribes
tonic x and tonic y, which are having vitamin A, and D in certain
proportion. Also advises the patient to consume at least 40 units of
vitamin A and 50 units of vitamin Daily. The cost of tonics x and y and the
proportion of vitamin A and D that present in x and y are given in the
table below

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 32

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 METHODS FOR THE SOLUTION OF A LINEAR PROGRAMMING PROBLEM

Linear Programming, is a method of33solving the type of problem in which

two or more candidates or activities are competing to utilize the
available limited resources, with a view to optimize the objective
function of the problem.
The objective may be to maximize the returns or to minimize the costs.

1. Graphical Method . The characteristics of Graphical method are:

(i) Generally the method is used to solve the problem, when it involves two
decision variables.

(ii) Always, the solution to the problem lies in first quadrant.

(iii) This method provides a basis for understanding the other methods of
solution.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 2. The Simplex method.
34

 When the problem is having more than two decision variables, simplex

method is the most powerful method to solve the problem.

 It has a systematic programme, which can be used to solve the problem.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Problem 1
A company manufactures two products,
35
X and Y by using three
machines A, B, and C. Machine A has 4 hours of capacity available
during the coming week. Similarly, the available capacity of
machines B and C during the coming week is 24 hours and 35 hours
respectively. One unit of product X requires 1 hour of Machine A, 3
hours of machine B and 10 hours of machine C. Similarly one unit
of product Y requires 1 hour, 8 hour and 7 hours of machine A, B
and C respectively. When one unit of X is sold in the market, it
yields a profit of Br. 5/per product and that of Y is Br. 7/per unit.
Solve the problem by using graphical method to find the optimal
product mix.
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
 Problem 2
36

A dietician wishes to mix two types of foods in such a way that

vitamin contents of the mixture contain at least 8 units of
vitamin A and 10 units of vitamin C. Food ‘I’ contains 2
units/kg of vitamin A and 1 unit/kg of vitamin C. Food ‘II’
contains 1 unit/kg of vitamin A and 2 units/kg of vitamin C. It
costs Br.50 per kg to purchase Food ‘I’ and Br. 70 per kg to
purchase Food ‘II’.

Formulate this problem as a linear programming problem to

minimize the cost of such a mixture.
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
 Exercise (group)
The cost of materials A and B is Br.1/ unit respectively. We have to
37
manufacture an alloy by mixing these to materials. The process of
preparing the alloy is carried out on three facilities X, Y and Z. Facilities X
and Z are machines, whose capacities are limited. Y is a furnace, where
heat treatment takes place and the material must use a minimum given
time (even if it uses more than the required, there is no harm). Material A
requires 5 hours of machine X and it does not require processing on
machine Z. Material B requires 10 hours of machine X and 1 hour of
machine Z. Both A and B are to be heat treated at last one hour in furnace
Y. The available capacities of X, Y and Z are 50 hours, 1 hour and 4 hours
respectively.

Find how much of A and B are mixed so as to minimize the cost.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
 Exercise (individual )

38

Formulate the l.p.p. and solve the below given problem

graphically. Old hens can be bought for br 2 each but young
ones costs br 5 each. The old hens lay 3 eggs per week and the
young ones lay 5 eggs per week. Each egg costs br 0.3. A hen
costs br 1 per week to feed. If the financial constraint is to
spend br 80 per week for hens and the capacity constraint is
that total number of hens cannot exceed 20 hens and the
objective is to earn a profit more than br 6 per week, find the
optimal combination of hens.
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
 Exercise (individual )
You’re on a special diet and know that your daily requirement of five
39
nutrients is 60 milligrams of vitamin C, 1,000 milligrams of
calcium, 18 milligrams of iron, 20 milligrams of niacin, and 360
milligrams of magnesium. You have two supplements to choose
from: Vega Vita and Happy Health. Vega Vita costs 20 cents per
tablet, and Happy Health costs 30 cents per tablet. Vega Vita
contains 20 milligrams of vitamin C, 500 milligrams of calcium, 9
milligrams of iron, 2 milligrams of niacin, and 60 milligrams of
magnesium. Happy Health contains 30 milligrams of vitamin C,
250 milligrams of calcium, 2 milligrams of iron, 10 milligrams of
niacin, and 90 milligrams of magnesium. How many of each tablet
should you take each day to meet your minimum requirements
while spending the least amount of money?
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
 Exercise (individual )
A manufacturing company makes two models A and B of a
40
product. Each piece of Model A requires 9 labor hours for
fabricating and 1 labor hour for finishing. Each piece of Model
B requires 12 labor hours for fabricating and 3 labor hours for
finishing. For fabricating and finishing, the maximum labor
hours available are 180 and 30 respectively. The company
makes a profit of Br. 8000 on each piece of model A and Br.
12000 on each piece of Model B. How many pieces of Model A
and Model B should be manufactured per week to realize a
maximum profit? What is the maximum profit per week?

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 41

CHAPTER – 3

Linear Programming Models

(Solution by Simplex Method)

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

❖ Simplex Method is most powerful method. It deals with iterative

process, which consists of first designing a Basic Feasible Solution or a

42
Programme and proceed towards the OPTIMAL SOLUTION and testing each
feasible solution for Optimality to know whether the solution on hand is
optimal or not.

❖ If not an optimal solution, redesign the programme, and test for optimality

until the test confirms OPTIMALITY.

❖ Hence we can say that the Simplex Method depends on two concepts

known as Feasibility and optimality.

❖ The simplex method is based on the property that the optimal solution to a

linear programming problem, if it exists, can always be found in one of

the basic feasible solution.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

In graphical method, the inequalities are assumed to be equations, so as to
43
enable to draw straight lines. But in Simplex method, the inequalities are
converted into equations by:

Adding a SLACK VARIABLE in maximization problem and subtracting a

SURPLUS VARIABLE in case of minimization problem.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 MAXIMISATION CASE

44

Eg. A factory manufactures two products A and B on three machines X, Y,

and Z. Product A requires 10 hours of machine X and 5 hours of machine
Y a one our of machine Z. The requirement of product B is 6 hours, 10
hours and 2 hours of machine X, Y and Z respectively. The profit
contribution of products A and B are br 23/unit and br 32 / unit
respectively. In the coming planning period the available capacity of
machines X, Y and Z are 2500 hours, 2000 hours and 500 hours
respectively. Find the optimal product mix for maximizing the profit.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 45

Maximize Z = 23 a + 32 b s.t. objective function

10 a + 6 b ≤ 2500
5 a + 10 b ≤ 2000 structural constraints.
1 a + 2 b ≤ 500
and both a and b are ≥ 0. Non-negativity Constraint
Maximize Z = 23 a + 32 b + 0S1 + 0S2 + 0S3
10 a + 6 b + 1S1 = 2500
5 a + 6 b + S2 = 2000
1 a + 2 b + S3 = 500 and
a, b, S1, S2 and S3 all ≥ 0

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 46

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 47

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

To do this the following procedure is used.
48
Step 1: To Write the incoming variable ‘b’ in place of out going variable S2.
Enter the profit of ‘b’ in profit column. Do not alter S1 and S3. While
doing so DO NOT ALTER THE POSITION OF THE ROWS.

Step 2: DIVIDING THE ELEMENTS OF OLD COLUMN BY KEY COLUMN ELEMENTS

obtains capacity column elements.

Step 3: Transfer of key row: Divide all Elements of Key Row by Respective
Key Column Number.

Step 4: Transfer of Non-Key rows: NEW ROW NUMBER = (old row number –
corresponding key row number) × fixed ratio. Fixed ratio = Key column
number of the row/key number.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

Step 5: Elements of Net evaluation row are obtained by: Objective row element
at the top of the row – Σ key column element × profit column element.
49
Step 6: Select the highest positive element in net evaluation row or highest
opportunity cost and mark the column by an arrow to indicate key column
(incoming variable).
Step 7: Find the replacement ratios by dividing the capacity column element in
the row by key column element of the same row and write the ratios in
replacement ratio column. Select the limiting (lowest) ratio and mark with a
tick mark to indicate key row (out going variable). The element at the
intersection of key column and key row is known as key number.
Continue these steps until we get:
(i) For maximization problem all elements of net evaluation row must be
either zeros or negative elements.
(ii) For Minimization problem, the elements of net evaluation row must
be either zeros or positive elements.
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
 Exercise ( individual )

❖ A company manufactures three products namely X, Y and Z. Each of the

50
product require processing on three machines, Turning, Milling and
Grinding. Product X requires 10 hours of turning, 5 hours of milling and 1
hour of grinding. Product Y requires 5 hours of turning, 10 hours of
milling and 1 hour of grinding, and Product Z requires 2 hours of turning,
4 hours of milling and 2 hours of grinding. In the coming planning period,
2700 hours of turning, 2200 hours of milling and 500 hours of grinding
are available. The profit contribution of X, Y and Z are Br 10, Br 15 and Br
20 per unit respectively. Find the optimal product mix to maximize the
profit.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 MINIMISATION CASE
❖ The objective function is of minimization type. The
51
inequalities are of ≥ type.

❖ To convert inequalities into equations, surplus Variables

are subtracted and artificial surplus variables are

added.

❖ While selecting, incoming variable, lowest element in the net

evaluation row is selected (highest number with negative

sign).

❖ When the element of net evaluation row are either positive or

zeros the solution is optimal.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
Eg. In this problem, a patient visits the doctor to get treatment for ill health.
The doctor examines the patient and advises him to consume at least 40
52
units of vitamin A and 50 units of vitamin B daily for a specified time
period. He also advises the patient that to get vitamin A and vitamin B he
has to drink tonic X and tonic Y that have both vitamin A and vitamin B in
a proportion. One unit of tonic X consists 2 units of vitamin A and 3 units
of vitamin B and one unit of tonic Y consists of 4 units of vitamin A and 2
units of vitamin B. These tonics are available in medical shops at a cost of
Br 3.00 and Br 2.50 per unit of X and Y respectively. Now the problem of
patient is how much of X and how much of Y is to be purchased from the
shop to minimize the total cost and at the same time he can get
required mounts of vitamins A and B.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 CERTAIN IMPORTANT POINTS TO BE REMEMBERED WHILE SOLVING LINEAR
PROGRAMMING PROBLEMS BY SIMPLEX METHOD:

1. In the given inequalities, there should not be any negative element on right hand
53
side (bi ≥ 0).

If any bi is negative, multiply the inequality by –1 and change the inequality sign.

2. Sometimes, the objective function may be maximization type and the inequalities
may be ≥ type. In such cases, multiply the objective function by –1 and convert it
into minimization type and vice versa.

3. While selecting, the incoming variable, i.e., key column, in maximization case, we
have to select the highest positive opportunities cost and in minimization case,
select the highest element with negative sign (smallest element). While doing so,
sometimes you may find the highest positive element in maximization case or
lowest element in minimization case falls under the slack variable in
maximization case or under surplus variable in minimization case.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Do not worry. As per rule, select that element and take the column containing
that element as key column.
54
4. Some times the columns of non-basis variables (decision variables) may have
their net evaluation elements same. That is the net evaluation elements are
equal. This is known as a TIE in Linear Programming Problem. To break
the time, first select any one column of your choice as the key column. In
the next table, everything will go right.

5. While selecting the out going variable i.e., key row, we have to select limiting
ratio (lowest ratio) in net evaluation row.

In case any element of key column is negative, the replacement ratio will be
negative. In case it is negative, do not consider it for operation. Neglect
that and consider other rows to select out going variable.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

6. Sometimes all the replacement ratios for all the rows or some of the rows may be equal and
that element may be limiting ratio. This situation in Linear Programming Problem is known
as DEGENERACY. We say that the problem is degenerating.
55
7. When the problem degenerate, the following precautions are taken to get rid of degeneracy.

(a) Take any one ratio of your choice to select key row or out going variable. If you do this,
there is a possibility that the problem may cycle. Cycling means, after doing many
iterations, you will get the first table once again. But it may not be the case all times.

(b) Select the variable, whose subscript is small.

Say S1 is smaller than S2 and S2 is smaller than S 3 or X1 is smaller than X2 an so on or x

is smaller than y or ‘a’ is smaller than ‘b’ and so on.

(a) If we do above two courses of action, we may encounter with one problem. That one of the
remaining variable in the next table (the one corresponding to the tied variable that was
not considered) will be reduced to a magnitude of zero. This causes trouble in selecting key
column in the next table.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

(d) Identify the tied variable or rows. For each of the columns in the identity
(starting with the extreme left hand column of the identity and proceeding
56
one at a time to the right), compute a ratio by dividing the entry in each tied
row by the key column number in that row.
Compare these ratios, column by column, proceeding to the right. The first
time the ratios are unequal, the tie is broken. Of the tied rows, the one in
which the smaller algebraic ratio falls is the key row.

(e) If the ratios in the identity do not break the tie, form similar ratios in the
columns of the main body and select the key row as described in (d) above.
The application of the above we shall see when we deal with degeneracy
problems.

7. While solving the linear programming problems, we may come across a situation
that the opportunity cost of more than one non- basic variables are zero, then we
can say that the problem has got ALTERNATE SOLUTIONS.
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
8. If in a simplex table only one un favorable Cj – Zj identifying the only
incoming variable and if all the elements of that column are either
57
negative elements or zeros, showing that no change in the basis can be
made and no current basic variable can be reduced to zero. Actually,
as the incoming arable is introduced, we continue to increase, without
bounds, those basic variables whose ratios of substitutions are
negative. This is the indication of UNBOUND SOLUTION.

9. In a problem where, the set of constraints is inconsistent i.e., mutually

exclusive, is the case of NO FEASIBLE SOLUTION. In simplex
algorithm, this case will occur if the solution is optimal (i.e., the test of
optimality is satisfied) but some artificial variable remains in the
optimal solution with a non zero value.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

Exercise ( Individual) A company produces three products A, B and C by using
two raw materials X and Y. 4000 units of X and 6000 units of Z are available for
58
production. The requirement of raw materials by each product is given below
The labor time for each unit of product A is twice that of product B and three times
that of product C. The entire labor force of the company can produce the equivalent
of 2500 units of product A. A market survey indicates the minimum demand of the
three products are 500, 500 and 375 respectively for A, B and C. However, their ratio
of number of units produced must be equal to 3: 2: 5. Assume that the profit per
units of product A, B and C are brr 60/unit , 40/unit and 100 /unit respectively.
Formulate the L.P.P. for maximizing the profit.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Individual Exercise

59

A company manufactures two product A and B. These are machined

on machines X and Y. A takes one hour on machine X and one hour
on Machine Y. Similarly product B takes 4 hours on Machine X and
2 hours on Machine Y. Machine X and Y have 8 hours and 4 hours
as idle capacity. The planning manager wants to avail the idle time
to manufacture A and B. The profit contribution of A is br 3/per
unit and that of B is br 9/ per unit. Find the optimal product mix .

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 MIXED PROBLEMS

As a mathematical interest, we may deal with some problems which have the
60
characteristics of both maximization and minimization problems.
These problems may not exist in real world, but they are significantly
important as far as mathematical interest. These problems are generally
known as Mixed problems. Let us work out some problems of this
nature. (by using big – M method).
Solve the following L.P.P.:
Minimize Z = 4a + 2b S.t.
3a + 1b ≥ 27

–1a –1b ≤ –21

1a + 2b ≥ 30

and both a and b are ≥ 0

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
 Exercise (individual)

61

Solve the following L.P.P.

Maximize Z = 1a + 2b + 3c – 1d S.t.
1a + 2b + 3c = 15
2a + 1b + 5c = 20
1a + 2b + 1c + 1f = 10 and a, b, c, f all are ≥ 0.

Maximize 4x + 3y s.t.
1x + 1y ≤ 50
1x + 2y ≥ 80
3x + 2y ≥ 140

And both x and y ≥ 0

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 DEGENERACY IN LINEAR PROGRAMMING PROBLEMS

The tie occurs when two or more net evaluation row elements of
variables are equal. 62
❖ In maximization problem (highest positive element to indicate
incoming variable)
❖ In minimization (lowest element to indicate incoming variable
or highest numerical value with negative sign).
❖ When two or more net evaluation row elements are same, to break the
tie, we select any one of them to indicate incoming variable and in the next
iteration the problem of tie will be solved.
❖ To select the out going variable, we have to select the lowest
ratio or limiting ratio in the replacement ratio column.
❖ Here also, some times during the phases of solution, the ratios may be
equal. This situation in linear programming problem is known as
degeneracy.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 To solve degeneracy, the following methods are used:
1. Select any one row as you wish. If you are lucky, you may get optimal
solution, otherwise the problem cycles. OR
63
2. Identify the rows, which are having same ratios. Say for example, S1
and S3 rows having equal ratio. In such case select the row, which
contains the variable with smaller subscript.
That is select row containing S1 as the key row. Suppose the rows of
variable x and z are having same ratio, then select the row-containing x
as the key row.
(a) Divide the elements of unit matrix by corresponding elements of key
column. Verify the ratios column-wise in unit matrix starting from left
to right. Once the ratios are unequal, the degeneracy is solved. Select
the minimum ratio and the row containing that element is the key row.
(This should be done to the rows that are in tie).
(b) If the degeneracy is not solved by 3 (a), then divide the elements of
the main matrix by the corresponding element in the key column, and
verify the ratios.
Once the ratios are unequal, select the lowest ratios. (This should be done
only to rows that are in tie).
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
Eg. A company manufactures two product A and B. These
are machined on machines64X and Y. A takes one hour on
machine X and one hour on Machine Y. Similarly product
B takes 4 hours on Machine X and 2 hours on Machine Y.
Machine X and Y have 8 hours and 4 hours as idle
capacity. The planning manager wants to avail the idle
time to manufacture A and B. The profit contribution of
A is br 3/per unit and that of B is br 9/ per unit. Find the
optimal product mix.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

❖ Now to select the out going variable, we have to take limiting ratio in the

replacement ratio column.

65
But both the ratios are same i.e. = 2. Hence there exists a tie as an
indication of degeneracy in the problem.

❖ To solve degeneracy follow the steps mentioned below:

Divide the elements of identity column by column from left to right

by the corresponding key column element. Once the ratios are
unequal select the lowest ratio and the row containing that ratio is
the key row.

❖ In this problem, for the first column of the identity (i.e. the S1 column) the

ratios are: 1/4, and 0/2.

❖ The lowest ratio comes in row of S2. Hence S2 is the outgoing
variable. In case ratios are equal go to the second column and try.
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
 Exercise (Individual )

66

 Maximize Z = 107a + 1b + 2c s.t

14a +1b – 6c + 3d = 7
16a + ½ b + 6c ≤ 5
3a – 1b – 6c ≤ 0
a, b, c and d all ≥ 0.
Find the optimal solution

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 DUALITY IN LINEAR PROGRAMMING PROBLEMS

❖ Linear programming problems exist in pairs.

67
❖ That is in linear programming problem, every maximization problem

is associated with a minimization problem.

❖ Conversely, associated with every minimization problem is a maximization

problem.

❖ The original linear programming problem is known as primal problem,

and the derived problem is known as dual problem.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

Eg. The doctor advises a patient visited him that the patient is
weak in his health due to shortage of two vitamins, i.e.,
68
vitamin X and vitamin Y. He advises him to take at least 40
units of vitamin X and 50 units of Vitamin Y everyday. He also
advises that these vitamins are available in two tonics A and B.
Each unit of tonic A consists of 2 units of vitamin X and 3
units of vitamin Y. Each unit of tonic B consists of 4 units of
vitamin X and 2 units of vitamin Y. Tonic A and B are
available in the medical shop at a cost of br 3 per unit of A
and br 2.50 per unit of B. The patient has to fulfill the need of
vitamin by consuming A and B at a minimum cost.
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
❖ The problem of patient is the primal problem. His problem is to
69
minimize the cost. The tonics are available in the medical shop.

❖ The medical shop man wants to maximize the sales of vitamins A and B;

hence he wants to maximize his returns by fixing the competitive prices

to vitamins.

❖ The problem of medical shop person is the dual problem.

Note that the primal problem is minimization problem and the dual problem is the
maximization problem.

❖ If we solve and get the solution of the primal problem, we can read the

answer of dual problem from the primal solution.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Solution to Primal: (Minimization problem i.e., patient’s problem)

70

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

Answer: x = 0.188, y = 0.875, and maximum profit is Rs. 51.25 .

❖ The patient has to minimize the cost by purchasing vitamin X and Y and
71
the shopkeeper has to increase his returns by fixing competitive prices for
vitamin X and Y. Minimum cost for patient is br 51.27 and the maximum
returns for the shopkeeper is br 51.25. The competitive price for tonics is
br 3 and br 2.50. Here we can understand the concept of shadow price
or economic worth of resources clearly.

❖ If we multiply the original elements on the right hand side of the

constraints with the net evaluation elements under slack or surplus

variables we get the values equal to the minimum cost of minimization
problem or maximum profit of the maximization problem.
❖ The concept of shadow price is similar to the economist’s concept of the
worth of a marginal resource.
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
❖ In other words, we can see for a manufacturing unit it is machine hour

rate. 72

It is also known as imputed(attributed) value of the resources.

❖ One cannot earn more than the economic worth of the resources he has

on his hand.

❖ The fact that the value of the objective function in the optimal program

equals to the imputed value of the available resources has been called

the Fundamental Theorem of Linear Programming.

❖ By changing the rows of the primal problem (dual problem) into

columns we get the dual problem (primal problem) and vice versa.
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
 Exercise (individual)
A company manufactures two products X and Y on three machines
73
Turning, Milling and finishing machines. Each unit of X takes, 10
hours of turning machine capacity, 5 hours of milling machine
capacity and 1 hour of finishing machine capacity. One unit of Y takes
6 hours of turning machine capacity, 10 hours of milling machine
capacity and 2 hours of finishing machine capacity.
The company has 2500 hours of turning machine capacity, 2000 hours
of milling machine capacity and 500 hours of finishing machine
capacity in the coming planning period. The profit contribution of
product X and Y are br 23 per unit and br 32 per unit respectively.
Formulate the linear programming problems and write the dual.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Note:
1. If in the primal, the objective function is to be maximized, then in the dual
it is to be minimized. Conversely, if in the primal the objective function is to
74
be minimized, then in the dual it is to be maximized.

2. The objective function coefficients of the prima appear as right-hand side

numbers in the dual and vice versa.

3. The right hand side elements of the primal appear as objective function
coefficients in the dual and vice versa.

4. The input - output coefficient matrix of the dual is the transpose of the input
– output coefficient matrix of the primal and vice versa.

5. If the inequalities in the primal are of the “less than or equal to” type then in
the dual they are of the “greater than or equal to” type.

Conversely, if the inequalities in the primal are of the “greater than or equal
to” type; then in the dual they are of the “less than or equal to” type.
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
6. The necessary and sufficient condition for any linear programming problem and its dual to
have optimum solution is that both have feasible solution. Moreover if one of them has a
finite optimum solution, the other also has a finite optimum solution.
75
The solution of the other (dual or primal) can be read from the net evaluation row (elements
under slack/surplus variable column in net evaluation row). Then the values of dual
variables are called shadow prices.

7. If the primal (either) problem has an unbound solution, then the dual has no solution.

8. If the ith dual constraints are multiplied by –1, then i th primal variable computed from net

evaluation row of the dual problem must be multiplied by –1.

9. If the dual has no feasible solution, then the primal also admits no feasible solution.

10. If k th constraint of the primal is equality, then the k th dual variable is unrestricted in sign.

11. If p th variable of the primal is unrestricted in sign, then the p th constraint of the dual is a

strict equality.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 76

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 77

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 SENSITIVITY ANALYSIS

While solving a linear programming problem for optimal solution, we assume

that: 78

❖ Technology is fixed,
❖ Fixed prices
❖ Fixed levels of resources or requirements,
❖ The coefficients of variables in structural constraints (i.e. time
required by a product on a particular resource) are fixed, and
❖ profit contribution of the product will not vary during the
planning period.

❖ These assumptions, implying certainty, complete knowledge, and static

conditions, permit us to design an optimal programme.
❖ The condition in the real world however, might be different from those that are
assumed by the model.
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
❖ It is, therefore, desirable to determine how sensitive the optimal

solution is to different types of changes in the problem data and

79
parameters.

❖ The changes, which have effect on the optimal solution are:

❖ Change in objective function coefficients (aij),

❖ Resource or requirement levels (bi),

❖ Possible addition or deletion of products or methods of production.

❖ The process of checking the sensitivity of the optimal solution for changes

in resources and other components of the problem, is given various names

such as: Sensitivity Analysis, Parametric Programming and Post
optimality analysis or what if analysis.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

❖ Post optimality test is an important analysis for a manager in their
planning process, when they come across certain uncertainties, say for
80
example, shortage of resources due to absenteeism, breakdown of
machinery, power cut off etc.

❖ They may have to ask question ‘what if’, a double–edged sword. They

are designed to project the consequences of possible changes in the

future, as well as the impact of the possible errors of estimation of the
past.

❖ The need for sensitivity analysis arises due to

❖ To know the effect of and hence be prepared for, possible future

changes in various parameters and components of the problem,

❖ To know the degree of error in estimating certain parameters

that could be absorbed by the current optimal solution.
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
❖ sensitivity analysis answers questions regarding what errors of estimation

could have been committed, or what possible future changes can occur,
81
without disturbing the optimality of the current optimal solution.

❖ The outcome of sensitivity analysis fixes ranges i.e., upper limits and lower limits

of parameters like Cj, aij, bi etc. within which the current optimal programme will
remain optimal.
❖ Hence, sensitivity analysis is a major guide to managerial planning and control.

❖ Also sensitivity analysis arises the need for reworking of the entire problem from

the very beginning each time a change is investigated or incorporated.

❖ The present optimal solution can be used to study the changes with minimum

computational effort.

❖ adding or deleting a new column (product) or adding or deleting a new row (new

process) we can analyze the changes with respect to Cj, aij, and bi

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Example
A company manufactures three products: X, Y and Z by using three resources.
82
Each unit of product X takes three man hours and 10 hours of machine
capacity and 1 cubic meter of storage place. Similarly, one unit of product Y
takes 5 man-hours and 2 machine hours on 1cubic meter of storage place
and that of each unit of products Z is 5 man-hours, 6 machine hours and 1
cubic meter of storage place. The profit contribution of products X, Y and Z
are br 4/unit, br 5/unit and br 6/unit respectively. Formulate the linear
programming problem and conduct sensitivity analysis when
Maximize Z = 4x + 5y + 6z s.t.
3x + 5y + 5z ≤ 900
10x + 2y + 6z ≤ 1400
1x + 1y + 1z ≤ 250
and all x, y, and z are ≥ 0
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
 83

CHAPTER: 4

Linear Programming: Transportation Model

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

❖ It is a special class of linear programming problem

❖ the objective is to transport a homogeneous commodity from various

84
origins or factories to different destinations or markets at a total
minimum cost.

Eg. Three factories A, B and C manufactures sugar and are located in different
regions.

❖ Factory A manufactures, b1 tons of sugar per year and B manufactures b2 tons of

sugar per year and C manufactures b3 tons of sugar. The sugar is required by four
markets W, X, Y and Z. The requirement of the four markets is as follows: Demand
for sugar in Markets W, X, Y and Z is d1, d2, d3 and d 4 tons respectively.

❖ The transportation cost of one ton of sugar from each factory to market is given in

the matrix below.

❖ The objective is to transport sugar from factories to the markets at a minimum

total transportation cost.

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Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 86

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 87

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

Initial Basic Feasible Solution

Step 1. Balancing the given problem. Balancing means check whether sum of
availability constraints must be equals 88
to sum of requirement constraints. That is
Σbi = Σd j . Once they are equal, go to step two. If not by opening a Dummy row
or Dummy column balance the problem.

❖ The cost coefficients of dummy cells are zero.

❖ If Σbi is greater than Σd j , then open a dummy column, whose requirement

constraint is equals to Σbi – Σd j and the cost coefficient of the cells are zeros.

❖ In case if Σd j is greater than Σbi , then open a dummy row, whose availability

constraint will be equals to Σd j – Σbi and the cost coefficient of the cells are zeros.

❖ In transportation problem, the dummy row or dummy column, exactly similar to

a slack variable.
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
Step II. A .Basic feasible solution can be obtained by three methods, they are

(a) North - west corner method. 89

(b) Least - cost cell method. (Or Inspection method Or Matrix minimum – row

minimum column minimum method)

(c) Vogel's Approximation Method, generally known as VAM.

After getting the basic feasible solution (b.f.s.) give optimality test to check

whether the solution is optimal or not. There are two methods of giving

optimality test:

❖ Stepping Stone Method.

❖ Modified Distribution Method, generally known as MODI method.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
 Properties of a Basic feasible Solution

1. The allocation made must satisfy the rim requirements, i.e., it

90
must satisfy availability constraints and requirement constraints

2. It should satisfy non negativity constraint.

3. Total number of allocations must be equal to (m + n – 1), where

'm' is the number of rows and 'n' is the number of columns.

Consider a value of m = 4 and n = 3, i.e. 4 × 3 matrix. This will have

four constraints of ≤ type and three constraints of ≥ type.

Totally it will have 4 + 3 (i.e. m + n) inequalities.

If we consider them as equations, for solution purpose, we will have 7

equations.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

❖ The sum of the origin capacities (availability constraint) equals to

the destination requirements (requirement constraint) i.e., Σbi = Σ dj,

91
❖ In general, therefore, if there are 'm' rows and 'n‘ columns, in a

given transportation problem, we can state the problem completely

with m + n – 1 equations.

❖ This also means that a basic feasible solution of a transportation

problem has only m + n – 1 positive components.

❖ If Σbi = Σ dj, it is always possible to get a basic feasible solution

❖North-west corner method,

❖Least Cost cell method or by

❖ VAM.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Basic Feasible Solution

Example 92

Four factories, A, B, C and D produce sugar and the capacity of each factory

is given below: Factory A produces 10 tons of sugar and B produces 8 tons

of sugar, C produces 5 tons of sugar and that of D is 6 tons of sugar. The

sugar has demand in three markets X, Y and Z.

The demand of market X is 7 tons, that of market Y is 12 tons and the

demand of market Z is 5 tons. The following matrix gives the

transportation cost of 1 ton of sugar from each factory to the destinations.

Find the Optimal Solution for least cost transportation cost.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
 93

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 The difference and similarities

94

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

In the problem given, the total cost of transportation for Northwest corner
95
method is Rs. 101/-. The total cost of transportation for Inspection

method is Rs. 71/- and that of VAM is Rs. 76/-.

The total cost got by inspection method appears to be less. That of

Northwest coroner method is highest. The cost got by VAM is in between.

Now let us discuss the method of getting optimal solution or methods of

giving optimality test for basic feasible solution.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Optimality Test: (Approach to Optimal Solution)

Once, we get the basic feasible solution for a transportation problem, the
96

next duty is to test whether the solution got is an optimal one or not?

This can be done by two methods.

(a) By Stepping Stone Method, and

(b) By Modified Distribution Method, or MODI method.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

(a) Stepping stone method of optimality test
❖ To give an optimality test to the solution obtained, we have to find the opportunity
97
cost of empty cells.

❖ As the transportation problem involves decision making under certainty, we know

that an optimal solution must not incur any positive opportunity cost.

❖ Thus, we have to determine whether any positive opportunity cost is associated

with a given progarmme, i.e., for empty cells.

❖ Once the opportunity cost of all empty cells are negative, the
solution is said to be optimal.

❖ In case any one cell has got positive opportunity cost, then the solution is
to be modified.

❖ The Stepping stone method is used for finding the opportunity costs of
empty cells. Every empty cell is to be evaluated for its opportunity cost. To
do this the methodology is:
Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023
1. Put a small ‘+’ mark in the empty cell.
2. Starting from that cell draw a loop moving horizontally and vertically from
98
loaded cell to loaded cell. Remember, there should not be any diagonal
movement. We have to take turn only at loaded cells and move to vertically
downward or upward or horizontally to reach another loaded cell. In
between, if we have a loaded cell, where we cannot take a turn, ignore that
and proceed to next loaded cell in that row or column.

3. After completing the loop, mark minus (–) and plus (+) signs alternatively.

4. Identify the lowest load in the cells marked with negative sign.

5. This number is to be added to the cells where plus sign is marked and
subtract from the load of the cell where negative sign is marked.

6. Do not alter the loaded cells, which are not in the loop.

10/6/2023
Admkew H. (Assistant professor of Mgmt) Haramaya University
7. The process of adding and subtracting at each turn or corner is necessary to
see that rim requirements are satisfied.
99
8. Construct a table of empty cells and work out the cost change for a shift of
load from loaded cell to loaded cell.

9. If the cost change is positive, it means that if we include the evaluated cell in
the programme, the cost will increase. If the cost change is negative, the
total cost will decrease, by including the evaluated cell in the programme.

10. The negative of cost change is the opportunity cost. Hence, in the optimal
solution of transportation problem empty cells should not have positive
opportunity cost.

11. Once all the empty cells have negative opportunity cost, the solution is said to
be optimal.

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Basic Feasible Solution obtained by VAM:

100

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 101

Chapter 5

Linear Programming: Assignment Model

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 102

Chapter 6

Decision Making Theories

Assignment (group)

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 103

Chapter 7

Sequences (Project Management

Applications)

Admkew H. (Assistant professor of Mgmt) Haramaya University 10/6/2023

 Project Management Applications
104

❖ What is a project?

❖ Any unique endeavor with specific objectives

❖ With multiple activities
❖ With defined precedent relationships
❖ With a specific time period for completion
❖ Examples?

❖ A major event like a wedding

❖ Any construction project
❖ Designing a political campaign

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 Project Life Cycle
105

❖ Conception: identify the need

❖ Feasibility analysis or study: costs benefits, and risks

❖ Planning: who, how long, what to do?

❖ Execution: doing the project

❖ Termination: ending the project

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 Network Planning Techniques
❖ Program Evaluation & Review Technique (PERT):

❖ Definition: PERT is basically a method for analyzing the task involved in completing
106
a given project.
❖ It is a network technique which consist events. PERT is useful in project planning
and control.
❖ used in : Project management - for non-repetitive jobs (research and development
work), where the time and cost estimates tend to be quite uncertain. This technique
uses probabilistic time estimates.
❖ Critical Path Method (CPM):

❖ In CPM activities are shown as a network of precedence relationships using activity-

on-node network construction.
❖ Single estimate of activity time.
❖ Deterministic activity times
❖ USED IN : Production management - for the jobs of repetitive in nature where the
activity time estimates can be predicted with considerable certainty due to the
existence
Admkew of pastHaramaya
H.(Ast.Professor) experience.
University 10/6/2023
 Both PERT and CPM
107

❖ Graphically display the precedence relationships & sequence of

activities

❖ Estimate the project’s duration

❖ Identify critical activities that cannot be delayed without delaying the

project

❖ Estimate the amount of slack associated with non-critical activities

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 Network Diagrams

 Activity-on-Node (AON):
 Uses nodes to represent the activity
 Uses arrows to represent precedence relationships

10/6/2023 Admkew H.(Ast.Professor) Haramaya

University 108
Step 1-Define the Project: Cables By Us is bringing a new product on
line to be manufactured in their current facility in existing space. The
owners have identified 11 activities109and their precedence relationships.
Develop an AON for the project.

Immediate Duration
Activity Description
Predecessor (weeks)
A Develop product specifications None 4
B Design manufacturing process A 6
C Source & purchase materials A 3
D Source & purchase tooling & equipment B 6
E Receive & install tooling & equipment D 14
F Receive materials C 5
G Pilot production run E&F 2
H Evaluate product design G 2
I Evaluate process performance G 3
J Write documentation report H&I 4
K Transition to manufacturing J 2
Admkew H.(Ast.Professor) Haramaya University 10/6/2023
 Step 2- Diagram the Network for Cables By Us

110

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 Step 3 (a)- Add Deterministic Time Estimates and Connected
Paths
111

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 Step 3 (a) (Con’t): Calculate the Project Completion Times

Paths Path duration

ABDEGHJK 40
ABDEGIJK 41
ACFGHJK 22
ACFGIJK 23

 The longest path (ABDEGIJK) limits the project’s duration (project cannot

finish in less time than its longest path)

 ABDEGIJK is the project’s critical path

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University 112
 Some Network Definitions
113

❖ All activities on the critical path have zero slack

❖ Slack defines how long non-critical activities can be delayed

without delaying the project
❖ Slack = the activity’s late finish minus its early finish (or its
late start minus its early start)
❖ Earliest Start (ES) = the earliest finish of the immediately
preceding activity
❖ Earliest Finish (EF) = is the ES plus the activity time

❖ Latest Start (LS) and Latest Finish (LF) = the latest an activity can
start (LS) or finish (LF) without delaying the project completion
Admkew H.(Ast.Professor) Haramaya University 10/6/2023
 ES, EF Network
114

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 LS, LF Network
115

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 Calculating Slack
116

Late Early Slack

Activity
Finish Finish (weeks)
A 4 4 0
B 10 10 0
C 25 7 18
D 16 16 0
E 30 30 0
F 30 12 18
G 32 32 0
H 35 34 1
I 35 35 0
J 39 39 0
K 41 41 0

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 Revisiting Cables By Us Using Probabilistic Time Estimates

117

Optimistic Most likely Pessimistic

Activity Description
time time time
A Develop product specifications 2 4 6
B Design manufacturing process 3 7 10
C Source & purchase materials 2 3 5
D Source & purchase tooling & equipment 4 7 9
E Receive & install tooling & equipment 12 16 20
F Receive materials 2 5 8
G Pilot production run 2 2 2
H Evaluate product design 2 3 4
I Evaluate process performance 2 3 5
J Write documentation report 2 4 6
K Transition to manufacturing 2 2 2

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 Using Beta Probability Distribution to Calculate Expected Time Durations

118
 A typical beta distribution is shown below, note that it
has definite end points
 The expected time for finishing each activity is a
weighted average

optimistic + 4(most likely) + pessimistic

Exp. time =
6
Admkew H.(Ast.Professor) Haramaya University 10/6/2023
 Calculating Expected Task Times

119

optimistic + 4(most likely ) + pessimisti c

Expected time =
6
Optimistic Most likely Pessimistic Expected
Activity
time time time time
A 2 4 6 4
B 3 7 10 6.83
C 2 3 5 3.17
D 4 7 9 6.83
E 12 16 20 16
F 2 5 8 5
G 2 2 2 2
H 2 3 4 3
I 2 3 5 3.17
J 2 4 6 4
K 2 2 2 2

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 Network Diagram with Expected Activity Times
120

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 Estimated Path Durations through the Network

Activities on paths Expected duration

ABDEGHJK 44.66
ABDEGIJK 44.83
ACFGHJK 23.17
ACFGIJK 23.34
 ABDEGIJK is the expected critical path
& the project has an expected duration of
44.83 weeks
10/6/2023 Admkew H.(Ast.Professor) Haramaya
University 121
 Adding ES and EF to Network
122

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 Adding LS and LF to Network
123

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 Estimating the Probability of Completion Dates

❖ Using probabilistic time estimates offers the advantage of predicting the

probability of project completion dates

❖ We have already calculated the expected time for each activity by making

three time estimates

❖ Now we need to calculate the variance for each activity

❖ The variance of the beta probability distribution is:

2
p−o
σ = 2

 6 
 where p=pessimistic activity time estimate
o=optimistic activity time estimate
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 Project Activity Variance
125

Activity Optimistic Most Likely Pessimistic Variance

A 2 4 6 0.44
B 3 7 10 1.36
C 2 3 5 0.25
D 4 7 9 0.69
E 12 16 20 1.78
F 2 5 8 1.00
G 2 2 2 0.00
H 2 3 4 0.11
I 2 3 5 0.25
J 2 4 6 0.44
K 2 2 2 0.00
Admkew H.(Ast.Professor) Haramaya University 10/6/2023
 Variances of Each Path through the Network

126

Path Activities on Path Variance

Number Path (weeks)
1 A,B,D,E,G,H,J,k 4.82

2 A,B,D,E,G,I,J,K 4.96

3 A,C,F,G,H,J,K 2.24

4 A,C,F,G,I,J,K 2.38

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 Reducing Project Completion Time
127

❖ Project completion times may need to be shortened

because:
❖ Different deadlines

❖ Penalty clauses

❖ Need to put resources on a new project

❖ Promised completion dates

❖ Reduced project completion time is “crashing”

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 Reducing Project Completion Time – con’t
128

❖ Crashing a project needs to balance

❖ Shorten a project duration

❖ Cost to shorten the project duration

❖ Crashing a project requires you to know

❖ Crash time of each activity

❖ Crash cost of each activity

❖ Crash cost/duration = (crash cost-normal cost)/(normal time – crash time)

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 Reducing the Time of a Project (crashing)
129

Activity Normal Normal Crash Crash Max. weeks Reduce cost

Time (wk) Cost ($) Time Cost ($) of reduction per week
A 4 8,000 3 11,000 1 3,000
B 6 30,000 5 35,000 1 5,000
C 3 6,000 3 6,000 0 0
D 6 24,000 4 28,000 2 2,000
E 14 60,000 12 72,000 2 6,000
F 5 5,000 4 6,500 1 1500
G 2 6,000 2 6,000 0 0
H 2 4,000 2 4,000 0 0
I 3 4,000 2 5,000 1 1,000
J 4 4,000 2 6,400 2 1,200
K 2 5,000 2 5,000 0 0
Admkew H.(Ast.Professor) Haramaya University 10/6/2023
Crashing Example: Suppose the Cables By Us project manager wants to reduce
the new product project from 41 to 36 weeks.
130

❖ Crashing Costs are considered to be linear

❖ Look to crash activities on the critical path

❖ Crash the least expensive activities on the critical path first (based on
cost per week)
❖ Crash activity I from 3 weeks to 2 weeks $1000
❖ Crash activity J from 4 weeks to 2 weeks $2400
❖ Crash activity D from 6 weeks to 4 weeks $4000
❖ Recommend Crash Cost $7400

❖ Question: Will crashing 5 weeks return more in benefits than it costs?

Admkew H.(Ast.Professor) Haramaya University 10/6/2023

 Crashed Network Diagram

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131
Admkew H.(Ast.Professor) Haramaya University
 The Critical Chain Approach
❖ The Critical Chain Approach focuses on project due dates rather than on
individual activities and the following realities:
❖ Project time estimates are uncertain so we add safety time
❖ Multi-levels of organization may add additional time to be “safe”
❖ Individual activity buffers may be wasted on lower-priority activities
❖ A better approach is to place the project safety buffer at the end

Original critical path

Activity A Activity B Activity C Activity D Activity E

Critical path with project buffer

Activity A Activity B Activity C Activity D Activity E Project Buffer

10/6/2023
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 133

The End

Admkew Haile
yadeniadmkew @gmail.com
+251 921674931

Admkew H.(Ast.Professor) Haramaya University 10/6/2023